Settlement Agreements for Employers

When may a Settlement Agreement be used?

If you are finding yourself in one of the following situations, the best solution may be to consider a “clean break” and offer the employee a Settlement Agreement (formerly Compromise Agreement).

  • You are making an employee redundant.
  • You are otherwise contemplating dismissing the employee.
  • There is, or there will potentially be a dispute between you and the employee, whether in the form of an internal grievance or a Court or Tribunal case.

Employers may in these situations wish to open a confidential ‘without prejudice’ or ‘protected’ discussion under section 111A Employment Rights Act 1996 with the employee in order to reach a Settlement Agreement.

What are the standard terms in a Settlement Agreement?

Settlement Agreements are contracts in which the employee agrees to waive their potential claims in consideration for payment/s and other terms of settlement. In addition to clauses about payment terms and references, Settlement Agreements usually contain terms preventing one or both parties from making disparaging statements about the other. Settlement Agreements also often require the parties to keep the Settlement Agreement confidential. Often, employers will ask that the employee provides an indemnity against any tax payable on the compensation sum.

In order for a settlement agreement to be valid, certain conditions must be met:

  • the agreement must be in writing
  • it must be in writing
  • it must relate to a particular complaint or proceedings (eg. simply stating ‘in full and final settlement of all claims’ will not be sufficient)
  • it must state that the conditions regulating settlement agreements have been satisfied
  • prior to signing, the employee must have received advice from a ‘relevant independent adviser’ on the terms and effects of the proposed agreement and its effect on their ability to pursue a claim against the employer

Who pays for the advice on the Settlement Agreement?

Usually, the employer offers to contribute a sum towards the employee’s legal costs but we can discuss this further with you and explore all options available. The employee must be required to take legal advice prior to signing the agreement.

Are you an Employer? Contact us about Settlement Agreements.

If you are an employer and thinking about offering a Settlement Agreement, or have any other employment related legal concern please do not hesitate in contacting us today. We have many years of experience in advising large and small employers. We offer a first-rate, personal and cost-effective service.

I live outside of London, can I still speak to you?

Even though we are based in London, we have many clients further afield, if you are based outside of London please contact us today and we can arrange a telephone conference.